ISAs. This factsheet explains the rules for saving and investing within an ISA. Who can invest in an ISA? What is an ISA?

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1 FACTSHEET ISAs This factsheet explains the rules for saving and investing within an ISA. This factsheet provides a generic overview of ISAs and is not intended as a guide to any specific product. What is an ISA? An ISA is a tax wrapper. This means that cash and investments held within an ISA wrapper will qualify for more generous tax treatment than those not held within the wrapper. There are two ISA products: a cash ISA; and a stocks and shares ISA What is the tax treatment of funds in an ISA? Interest received within an ISA is not subject to income tax. Dividend income will not attract any additional income tax charge, although it is not possible to reclaim the 10% tax credit. When investments held within an ISA are sold, any gains will be free from capital gains tax, but losses cannot be offset against other chargeable gains made on investments held outside an ISA. Who can invest in an ISA? ISA products are only available to individuals, and it is not possible to hold an ISA in joint names. ISA investments cannot be held by or for trusts, companies or other legal entities. The minimum age limit for investing in an adult ISA depends upon the product. To be eligible to invest in an adult cash ISA, you have to be aged 16 or over. Anyone aged 18 or over can invest in an adult stocks and shares ISA. Junior ISAs are also available (see over). Unless you are a Crown employee or the spouse or civil partner of a Crown employee, you must also be UK resident for UK tax purposes at the time of investment. A Crown employee includes diplomats and members of the armed forces. If you are unsure of your UK residency position, you should seek advice from a tax adviser or consult your local tax office.

2 How much can I invest in an ISA? An individual has an annual subscription limit of 15,240 for the 2015/16 tax year. The total subscription limit can be split in any proportion between a cash and a stocks and shares ISA. The surviving spouse or civil partner of an individual who dies on or after 3 December 2014 will be entitled to an additional subscription allowance equal to the value of the ISA holdings at the individual s date of death. The additional allowance will be available from 6 April 2015 and will be subject to special time limits. Subject to the subscription limits, there is currently no overall limit to how much can be accumulated within the ISA account. What are the time limits for the additional subscription I have inherited from my spouse or civil partner? If your spouse or civil partner s ISA savings included stocks and shares, you will have 180 days from the date that the estate was first distributed to make an in specie transfer of those assets or any part of those assets. For deaths occurring between 3 December 2014 and 5 April 2015, in specie subscriptions must be made by the later of: 180 days from the date the assets were first distributed to the survivor; and 2 October If your spouse or civil partner did not hold shares or you will be making the additional subscription partly or wholly in cash, the following time limits apply: no more than 3 years after the date of death; or 180 days after the administration of the estate is complete If I don t invest in one year, can I invest my unused allowance in later years? Unused ISA allowances cannot be brought forward from earlier years, so any unused allowance at the end of the tax year will be lost. Can I withdraw funds from my ISA? Prior to 2015/16, it was not possible to withdraw funds from an ISA and top up again later in the tax year if you had already used up your allowance for the year, as the top up counted towards your subscription limit for the year. Example On 6th July 2014, Rafael invests 15,000 in a cash ISA. This uses up his subscription limit for an ISA for 2014/15. On 6th December 2014, Rafael withdraws 1,000 from his cash ISA. The balance is now 14,000. Rafael cannot add a further 1,000 to his cash ISA before 6th April 2015 to replace the 1,000 withdrawn, as he has already made the maximum subscription for the 2014/15 tax year. Budget 2015 announced that the rules would be amended, allowing withdrawals to be made from a cash ISA and a top up made to the cash ISA which would not count towards the annual subscription allowance, so long as both the withdrawal and top up both occur in the same tax year. At the time of writing, we are waiting for the draft regulations which will allow this top up facility. Savers would therefore be advised to carefully consider whether it is appropriate to rely on the announcements when withdrawing funds early on in the tax year. If the facility is not introduced, it is possible that they couldn t top up the funds again without eating in to their subscription allowance for 2015/16. whichever is the later. For deaths occurring between 3 December 2014 and 5 April 2015 inclusive, the date of death will be deemed to have occurred on 6 April

3 What can I hold in an ISA? Subject to the provider s rules, the list of investments which can be held in an ISA product is extremely wide. All the cash components of an ISA should be able to hold the following: Cash deposited in a qualifying bank or building society account or credit union; Cash deposited with a share account with a building society; and National Savings and Investments products which are designed for inclusion in ISAs. A stocks and shares ISA may offer in addition to the cash component, a wide range of investments, including the following: Shares and corporate bonds listed on a recognised stock exchange. The listing can be worldwide; Shares listed on the Alternative Investment Market and other non-traditional stock exchanges e.g. ICAP Securities and Derivatives Exchange; Units or shares in unit trusts and Open Ended Investment Company trusts (OEICs) authorised by the FCA; Units or shares in investment trusts; Units or shares in UCITS (Undertakings for Collective Investment in Transferable Securities) based within the EU; Stocks and shares ISAs can hold cash balances without incurring a flat 20% income tax charge. The Government is currently consulting on allowing the following additional investments: Peer-to-peer loans; and Debt securities offered by crowdfunding platforms. Can I transfer in existing stocks and shares? Other than the in specie transfer made following the death of the first spouse or civil partner, you cannot generally transfer in any shares you already hold. The only shares which you can transfer in directly are shares held through an approved Save As You Earn share option scheme or a Share Incentive plan. Transfers must be made within 90 days of the shares ceasing to be subject to the plan or within 90 days of the exercise of an option within the Save As You Earn share option scheme. Other shares must be purchased from funds held in the stocks and shares ISA. There is no restriction on selling shares and transferring the proceeds into the stocks and shares ISA to re-purchase within the ISA wrapper. However, any chargeable gains made on the sale of shares with the intention of re-investing the proceeds within an ISA may attract a capital gains tax charge if your total gains for the year exceed your annual allowance. Non-UCITS units or shares if authorised by the FCA for sale to retail investors in the UK; Shares transferred from an HMRC approved Save As You Earn scheme or Share Incentive Plan; Gilts issued by the UK or EEA governments; Life insurance policies; Cash deposited in a qualifying bank or building society account; and National Savings and Investments products which are designed for inclusion in ISAs. 3

4 For how long should I invest? The preferential tax treatment of investments in an ISA does not depend on holding the investments for a minimum qualifying period, and continues as long as the investments are held within the ISA wrapper. Can I invest on behalf of my children? So long as your child does not have a Child Trust Fund, you can invest in a Junior ISA (JISA) on their behalf. The limit for 2015/16 is 4,080. Income received within a JISA from funds subscribed by parents is not treated as the parent s income under a specific exemption within the JISA regulations. The settlement legislation states that income received in the hands of a child is taxable as the parent s income if the following apply: The total income for the year exceeds 100; and The income derives from funds from the parent. The settlement legislation will apply to cash ISAs for savers aged between 16 and 18 when funds come from parents. That said, the settlements legislation does not catch gifts from grandparents. From 6 April 2015 onwards, investments in Child Trust Funds can be transferred to a JISA. What happens if I decide to move abroad in future? Any ISAs which you already hold will continue to qualify for income tax and capital gains tax relief. Unless you are either a Crown employee working overseas or the spouse or civil partner of a Crown employee working overseas, you will not be able to make any additional investments into either your existing ISAs or into new ISA accounts, until you become resident in the UK again. What happens when I die? Any income tax and capital gains tax relief ceases on the date of your death, and income or gains arising following your death will become taxable in the hands of your executors during the administration of your estate. Any cash or investments held in ISAs will form part of your estate for inheritance tax purposes. Certain shares listed on the Alternative Investment Market may also be eligible for business property relief for inheritance tax purposes. Business property relief reduces the value of qualifying assets when calculating the inheritance tax liability arising on gifts or following an individual s death. Where you have invested in a life insurance policy, your death will trigger death benefits which your personal representatives will need to claim. For deaths occurring on or after 3 December 2014, if you are survived by your spouse or civil partner, they will be able to make an additional subscription to an ISA equal to the value of your ISA savings at the date of your death. The first subscriptions can be made from 6 April The benefits of the ISA wrapper will only apply to the additional subscription from the date that the additional subscription is made. This means that, during the administration of the estate, any income will be subject to income tax and any capital gains will be subject to capital gains tax. You may be subject to income tax and/or capital gains tax in your country of residence. Surviving spouses and civil partners will not be able to take advantage of the new additional subscription available on the first death if they are not UK resident.

5 Additional information Further information on the ISA regime can be found on HMRC s website at: Please note that the tax treatment depends on your individual circumstances and may be subject to change in the future. James Hay Partnership is not authorised to give financial advice. If you need financial advice or have any questions regarding the content of this factsheet, please speak to your financial adviser. If you would like to speak to a financial adviser but do not have one, please visit Further information (for financial advisers only) Please contact the Technical Support Unit with any further queries on: Tax and Trust Technical Support: taxtrust.techsupport@jameshay.co.uk James Hay Partnership is the trading name of James Hay Insurance Company Limited (JHIC) (registered in Jersey number 77318); IPS Pensions Limited (IPS) (registered in England number ); James Hay Administration Company Limited (JHAC) (registered in England number ); James Hay Pension Trustees Limited (JHPT) (registered in England number ); James Hay Wrap Managers Limited (JHWM) (registered in England number ); James Hay Wrap Nominee Company Limited (JHWNC) (registered in England number ); PAL Trustees Limited (PAL) (registered in England number ); Santhouse Pensioneer Trustee Company Limited (SPTCL) (registered in England number ); Sarum Trustees Limited (SarumTL) (registered in England number ); Sealgrove Trustees Limited (STL) (registered in England number ); The IPS Partnership Plc (IPS Plc) (registered in England number ); Union Pension Trustees Limited (UPT) (registered in England number ) and Union Pensions Trustees (London) Limited (UPTL) (registered in England number ). JHIC has its registered office at 3rd Floor, 37 Esplanade, St Helier, Jersey, JE2 3QA. IPS, JHAC, JHPT, JHWM, JHWNC, SPTCL, SarumTL and IPS Plc have their registered office at Trinity House, Buckingway Business Park, Anderson Road, Swavesey, Cambs CB24 4UQ. PAL, STL, UPT and UPTL have their registered office at Dunn s House, St Paul s Road, Salisbury, SP2 7BF. JHIC is regulated by the Jersey Financial Services Commission and JHAC, JHWM, IPS and IPS Plc are authorised and regulated by the Financial Conduct Authority. The provision of Small Self Administered Schemes (SSAS) and trustee and/or administration services for SSAS are not regulated by the FCA. Therefore, IPS and IPS Plc are not regulated by the FCA in relation to these schemes or services.(01/14) JHP0057 MAY15 LD 5